➤ Fundamentals point to new records for gold prices ahead, according to Ed Moy, chief investment strategist at Valaurum Inc. and former director of the United States Mint.
➤ Uncertainty around COVID-19 vaccines, economic stimulus will drive investors to gold.
➤ Moy expects more companies to consider gold over cash, and other investments.
Ed Moy, chief investment strategist at Valaurum Inc. and former director of the U.S. Mint.
Source: Valaurum Inc.
Gold prices surged in early 2020 as investors dealt with the uncertainty created by the COVID-19 pandemic. While prices calmed down toward the end of the year, many industry observers are seeing signs supporting higher prices in the year ahead.
S&P Global Market Intelligence spoke with Ed Moy, the chief investment strategist at Valaurum, which sells smaller increments of precious metals. Moy, who was the director of the United States Mint from 2006 to 2011, discussed the potential of the gold market setting new price records in 2021 and about parallels between current events and the 2008 financial crisis. The following conversation has been edited for length and clarity.
S&P Global Market Intelligence: What do you see for the future of the gold price, both in the short and long term?
Ed Moy: Obviously, short term, there's a lot of factors that are causing some push and pull, which has kept gold trading within a very tight range. But from my perspective, I think the fundamentals for rising gold prices are very strong over the next year. I expect gold prices to eventually break out and head to new records sometime in the next year or two.
Is there a number that you would want to put on that, or maybe a range?
I'm not a price picker. But I will not be surprised if gold hits new records.
During the financial crisis, I saw a parallel situation to what's happening now. Not everything's the same. I think a lot of the principles are the same. Number one, you have a crisis that has huge economic consequences. What happens during that time is, there's a flight to safety and that's when you saw gold jump up during the early stages of the financial crisis.
Then what happened was, the government intervened in a really big way. That gave a lot of investors confidence that the government was doing whatever it could to soften the effects of the economic crisis. Gold corrected. In the case of the financial crisis, it corrected by about 30%.
Then the realization happened that, with all the stimulus, there was still a lot of economic uncertainty, and the fear of inflation set in. You saw over the course of three years, even past the financial crisis, gold then hit a new historic high in 2011.
The same things were happening when COVID-19 first started breaking out. Lockdowns started coming into place, people panicked, they went into gold. Gold actually shot up to a new high, and the government ... [is] basically throwing more at it than what happened during the financial crisis. Plus, with the vaccine, people started relaxing.
Now, people are beginning to realize the COVID-19 variants may or may not respond well to the vaccine. It may take a lot longer for the vaccine to have its impact. Governments have turned up the stimulus, and it is anticipated that under [the administration of President Joe Biden], more is less of a problem than less.
Eventually, you're going to see that be a catalyst for rising gold prices. I think that until it becomes certain how the economy will recover and that the recovery will be slow enough to manage inflation, gold prices are going to go up. Once those two criteria are hit, then gold prices will go down, and I won't be surprised if we hit new highs.
Cryptocurrencies are having another big moment in recent weeks. Some people even say bitcoin is the new gold. What is your take on that?
I think there are some similarities, but there are enough differences. It's not an "either-or" situation. In Ed Moy's opinion, it's a "both-and." There are advantages to buying both of them depending on what your financial goals are.
When you take a look at the overall similarities, both are limited quantities. Bitcoin is limited to 21 million that could possibly be mined. People have tried to recreate gold in a laboratory; they have not been able to. So the amount of gold that's in the earth is all that will ever be.
Their prices have an inverse correlation to the value of the dollar. So when the dollar goes down, both bitcoin and gold tend to go up.
But there are some differences, and I think they are important differences. One of them is that gold's been around for 5,000 years. Bitcoin has been around for 10 years. The longevity of bitcoin has yet to be proven.
Number two, it's a different kind of investor. When you take a look at the people who buy, say, gold bullion coins from the U.S. Mint, it tends to be a group of people who have thoughts on sound currency, gold-backed things and so on. A lot of younger investors are into bitcoin. Recently, what has moved markets has been institutional investors buying in. When they buy in, they have a much larger capital base. Therefore, you've seen some squeeze on supply out there, and that's pushing up prices.
Gold is a much more established market. There are standards and accessibility that bitcoin currently doesn't enjoy.
Tesla Inc. recently made news saying it was investing in cryptocurrency. The company also said it was updating its investment policy to allow for investments in gold. Do you think other companies might follow Tesla's lead?
I think you are going to see more of that. Most companies have two types of investment options. They plow it into equities and bonds, or if things look uncertain, they plow it into cash. Well, when things are uncertain, plowing some of that cash into assets that have an inverse correlation to the value of the dollar is a pretty smart thing. I think yes, you are going to see more and more companies beginning to do this now that Tesla has made a big splash with this recent move.